2011 (8) TMI 1144 - HC - Income Tax

Revisional Power of Commissioner u/s 263 - Contention was whether on the facts and circumstances of the case and in law, the Appellate Tribunal is right in quashing the order u/s.263 without considering the decision of this Hon'ble Court in the case of FAKIR MOHMED HAJI HASAN VERSUS COMMISSIONER OF INCOME-TAX 2000 (8) TMI 44 - GUJARAT HIGH COURT ? HELD THAT - In the case of DY. COMMISSIONER OF INCOME TAX VERSUS RADHE DEVELOPERS INDIA LTD. 2009 (4) TMI 21 - GUJARAT HIGH COURT , it was held that, the decisions of this Court in the case of Fakir Mohmed Haji Hasan is neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 56 of the Act have been considered. Having thus heard the parties, in so far as the question on which the Commissioner sought to reopen the assessment by exercising powers under section 263 of the Act is concerned, same permits no debate. Power u/s 263 can't be exercised when two views are possible - Appellate Tribunal did not appreciate the words 'erroneous and prejudicial to the revenue' as defined in the decision of the Hon'ble Supreme Court in the case of Malbar Industrial Co. Ld. v. CIT 243 ITR 83? - HELD THAT - In the case of MALABAR INDUSTRIAL CO. LTD. VERSUS COMMISSIONER OF INCOME-TAX 2000 (2) TMI 10 - SUPREME COURT , it was said that, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law. In any case, we are convinced that the Tribunal was correct in holding that even if two views are possible, powers under section 263 of the Act could not and ought not to have been exercised.

Summary

Issues involved:
1. Appellate Tribunal quashing order u/s.263 of the I.T.Act without considering relevant court decisions.
2. Appellate Tribunal not appreciating the definition of 'erroneous and prejudicial to the revenue' as per court decisions.

Analysis:
1. The case involved a partnership firm running a hospital, where the Assessing Officer made a disallowance in the expenses claimed by the assessee. The Commissioner, under section 263 of the Income Tax Act, revised the assessment due to undisclosed income invested in assets not recorded in the books. The Commissioner directed re-examination of borrowed funds utilization for expansion. The Tribunal allowed the appeal, stating interest on borrowed funds is allowable deduction regardless of utilization. The High Court upheld this view citing relevant court decisions.

2. The Tribunal also considered the treatment of undisclosed income and deduction for remuneration paid to partners. The High Court noted that even if two views are possible, powers under section 263 of the Act should not be exercised. Citing the decision in Malabar Industrial Co. Ltd., the court emphasized that loss of revenue due to a permissible course adopted by the Assessing Officer or a difference in opinion does not make an order erroneous unless unsustainable in law. The court referred to the Karnataka High Court decision in S.K.Srigiri and Bros., where additional income from business should consider partner remuneration. The High Court concluded that no legal question arose, dismissing the Tax Appeal.

This detailed analysis highlights the assessment, revision under section 263, Tribunal's decision, and the High Court's final judgment based on legal principles and relevant court decisions.